Proxy access

The SEC has issued its much-anticipated Staff Legal Bulletin on two rules impacting shareholder proposals. You can find the SLB here. The SLB looks a bit more benign than some had feared; in other words, it’s got some bad news, but the good news is that it’s not as bad as some feared.

Rule 14a-8(i)(9) – Conflicting Proposals

The SLB deals with two areas of SEC Rule 14a-8 – the Rule governing shareholder proposals. The first area relates to Rule 14a-8(i)(9), which addresses what happens when a shareholder proposal “directly conflicts” with a company proposal. This issue reared its head during the 2015 proxy season, when the SEC withdrew a no-action letter it had granted to Whole Foods permitting it to exclude a shareholder proposal on proxy access and, at the direction of SEC Chair White, declared a moratorium on issuing no-action letters under Rule 14a-8(i)(9).

Something shocking happened at the SEC yesterday. SEC Chair Mary Jo White directed the SEC Staff to review its long-standing position on when a shareholder proposal conflicts with a company proposal and may be excluded from the proxy statement. As a result, the SEC’s Division of Corporation Finance withdrew a no-action letter that had given Whole Foods the green light to exclude a shareholder proposal on proxy access by including its own (less shareholder-friendly) proposal on the subject. Corp Fin also said that it would not be issuing any additional no-action letters under the rule in question. It’s worth noting that these actions were taken at a sensitive time, as calendar-year companies approach peak proxy season and a major investor campaign is under way to impose proxy access upon companies that have been resisting it.

The SEC’s shareholder proposal rules are very complex, and I won’t go into details here. However, as a general matter, the rules lay out the process by which eligible shareholders can submit proposals for inclusion in a company’s proxy statement. Relevant here is that (1) the rules provide certain conditions under which a company can exclude a proposal and (2) companies can avail themselves of a “no-action” process to get the SEC’s permission to exclude a proposal if the conditions are satisfied. It’s worth noting that the no-action process isn’t dispositive; the proponent or the company can take the matter to court, and there are usually a couple of cases each year in which that happens.

About this Blog

The Securities Edge is published by Gunster’s Securities and Corporate Governance Practice. Our blog focuses on securities law topics of interest to executives of middle market businesses. We try to focus on the most important issues of the day and distill the complex and convoluted into easy to understand blog posts so company executives can get up to speed and move on to what’s really important: running their business.